As protesters occupy Wall Street and cities around the world decrying the disparity between the top 1% and the remaining 99%, CEPR DP8675 investigates the link between skyrocketing inequality and top tax rates in OECD countries. The authors find a strong correlation between tax cuts for the highest earners and increases in the income share of the top 1% since 1975.

Should the income tax system include a tax credit for short taxpayers and a tax surcharge for tall ones? This column explains how the standard utilitarian framework for tax policy analysis says that individual attributes correlated with wages, such as height, should determine tax liabilities. Taller individuals should pay higher taxes. If this is objectionable, then something is wrong with the standard framework.

Women have a more elastic labor supply than men and participate less in the market because of intra-family bargaining. Their labor income should be taxed less to achieve optimal taxation and to change the allocation of family chores in a way that allows females to work more in the market if they want. This tax approach may be fiscally cheaper, less distortionary and would directly address the source of labor market gender differences: intra-family bargaining.

According to taxation theory, a government should tax goods and services which have a more elastic supply less. As women’s labour supply is more elastic than men’s, tax rates on labour income should be lower for women than for men. The authors of CEPR DP6591 analyse the effects of gender based taxation and find that it provides substantial welfare and GDP gains because it minimizes the overall social loss from labour market distortions.